Disengagement's Dead End

Jacob Weisberg has a great Slate article about economic sanctions that I think applies more broadly to the political disengagement tactics so popular within the Bush administration. Weisberg points out that isolation has some use as an international signaling mechanism of disapproval, but often has the unfortunate effect of playing into the hands of the local dictator. The examples of failed disengagements are many. Dan Drezner, while agreeing with Weisberg generally, offered a few counterpoints. Drezner noted that in addition to the popular example of South Africa (which Weisberg discussed), Libya may also serve as an example of a positive outcome of sanctions (I think he's right on that). Also Drezner, citing China, notes that engagement is not always a panacea. I think it's a fair point that economic and political engagement rarely leads to immediate sweeping gains, but I'd argue that China has been trending in a positive direction overall.

Nuclear Politics

India is apparently not very happy with the U.S. position on Iran's nuclear policy. I don't know a whole lot about South Asian politics (and apparently neither does the State Department), but I find this to be interesting. It seems that India and Iran are getting on pretty well. One suspects that China may also want to make friends with Iran, as Iran is in need of friends these days, and China could use some oil partners who aren't too far under the sway of the U.S. Russia has also had good relations with Iran, as they've been the ones setting up the Iranian nuclear program. If these guys are willing to back Iran at the U.N., that's a pretty formidable coalition, one that the U.S. and Europe may have a hard time overcoming. This could be very interesting.

A 21st Century Rivalry

There's a good story on CSM about China's growing military capacity. In particular it describes a rapidly growing modern core group within the military. It predictably focuses on China's improved ability to challenge the U.S. in Taiwan, but I think the more interesting issues lie further in the future and on a much broader scope.

It's a pretty common meme at this point that China is poised to emerge as a top global rival to the U.S. Assuming that China's economy continues to grow at a rapid rate (and there are some potential problems there, particularly in the banking system) this seems almost inevitable. But I think suppositions that this would somehow mirror the Cold War are dead wrong. I'm not sure how this rivalry would unfold, but I highly doubt that it would resemble the Cold War. The contours of the Cold War were defined by the all-encompassing differences in the economic systems of the two sides that made the complete severing of ties between them possible and desirable.

The key to China's growth has been the modernizing of its economy and its embrace of free trade. The U.S. and China a crucial trade partners, and I don't see that changing. While China will undoubtedly become more assertive in its foreign policy and more apt to challenge the U.S. as its military and economic power grows, there will be a huge economic incentive for China and U.S. not to let things get out of hand. Of course, both sides will need to be wary, as nationalism can lead people to do stupid things, and no doubt there will be domestic political points to be scored by railing against the other side (indeed this is already the case in the U.S.). Flashpoints will emerge and tensions will flare. But money speaks loudly, and I think will hold things together in this case. The dynamic between the U.S. and China will likely be something we haven't seen before.

A Rival to NATO?

There's an article on CSM about the Shanghai Cooperation Organization, a military alliance potentially involving China, Russia, India, Pakistan, Iran, and the various -stans. It's an interesting idea, but do these countries have anything in common other than an interest in increasing their influence? It would be an extremely potent group, one that probably could rival NATO in power in coming decades, but I have a hard time seeing any coherent policies or positions that these nations could all agree on.

Bad Blood

I'm overdue to post something on the ongoing tiff between China and Japan which is being followed very closely by a certain member of my household. Japan has never repudiated the atrocities they committed in WWII the way Germany has and this has been a continuing source of tension between Japan and Korea (North and South) and China. While post-war Japan has emerged as a major donor nation, with much of their contributions targeted to nations harmed by them in the war, they have been careful to characterize those payments as donations rather than reparations, and Japan has consistently glossed over their wartime atrocities in their textbooks and historical accounts. China and Japan have never been particularly close, and this insult is one that China is not willing to drop. The recent discussions of UN reform, with the strong possibility of Japan gaining a permanent Security Council post, has brought things to a head. Japan does need to own up to their past, but I'm not sure the U.S. will care to push that point. Tension between the two nations hardly hurts us, allowing the U.S. to act as mediator, deepening Japan's dependence on the U.S. for military and diplomatic support, and strengthening U.S. influence in the region. It will be interesting to see if they can move past this, as China and Japan could both profit greatly in many regards from closer ties. The pull of profit seems to be slowly healing old wounds between China and Taiwan, and it may do the same between China and Japan.

China News

Former Communist Party chief Zhao Ziyang passed away.

Pork news

Here's something that might interest some of you. I say we call and see if it's available for this weekend.

Declining Global Influence

CSM has a story about how shrewd foreign policy moves by China and policy mistakes on our part have allowed China to become the dominant political force in the Far East.

Our free trade hypocrisy

With all the promotion of free trade by the Bush administration, I am continually amazed by how protectionist it is. The EU, supported by the recent WTO ruling against American steel tariffs, is threatening sanctions of its own on politically sensitive American products unless those tariffs are repealed. The Bush administration is taking time to think things over, as if the WTO ruling were ambiguous. Ironically, the steel tariffs, while perhaps saving a few steel worker jobs, have hurt American consumers of steel with higher prices.

As if that weren't enough, the administration has announced that it will impose quotas on the imports of certain Chinese textiles and clothing. This is technically legal under the WTO agreement with China (I can't find the specific text, but I believe that the US can impose product specific quotas on hyper-increasing imports for 12 years - aren't we sneaky?) . Strangely, these quotas are likely to do little for the virtually nonexistent textile manufacturing industry in the US. Will someone tell me what this administration means by free trade?

A Tangled Web

Asia Times has a very interesting story discussing the Bush administration's moves attempting to get China to revalue the yuan. They are critical of this policy for number of reasons. (FYI, it looks like China is rejecting this pressure in any case...)

First is that we have been running a huge trade deficit with China for some time (which is, of course, the administration's reasoning for this move). During this time China has been piling up US currency, but they have little motivation to buy anything from the US (or anyone else) with it. What can they get from the US that they can't produce cheaper themselves? So in an effort to do something productive with this money they've mostly been buying US government securities (ie financing the US federal budget deficit). If the US reduces this trade deficit at the same time that our budget deficit soars to record levels it will become difficult to find takers for securities to finance our debt. This will result in the US raising interest rates in order to make the securities more attractive, countering Alan Greenspan's intensive efforts to stimulate the US economy with low interest.

They also mention that a majority of the products imported from China are actually produced by American companies (something highlighted in the Oxfam report as well). To some extent this makes the trade deficit illusory (or at least makes it appear much worse than it is). Forcing these companies out of China will make their products more expensive and less attractive on the world market and could end up hurting American business.

Additionally it will have the effect of making products more expensive to Americans (whether the products continue to come from China, or are manufactured elsewhere, including the US), stifling US consumer spending or driving up consumer debt, which is already at dangerous levels.

Finally, the article does not discuss this, but I wonder how much of that manufacturing would return to the US even if China becomes less attractive? Wouldn't Indonesia, the Philippines, and India still be more attractive places to move these manufacturing centers to? I think there would have to be a more intensive effort to devalue the dollar to actually bring manufacturing back home. There is also a CSM article today discussing this general topic.

In all it becomes a very difficult situation to project. However, one thing is clear in all this: our massive budget deficit and national debt clearly constrain our ability to control our own economy with regards to international trade. These are penalties beyond simply mortgaging our future prosperity and indebting future generations. The debt locks our monetary and fiscal policies together, forcing us to make a choice between them. We can keep interest rates low to try and spark growth, but it means maintaining a strong dollar which hurts trade. Or we can devalue the dollar to reduce our trade deficit, but it will cost us higher interest rates to finance our debt. We can't have both.